Grain and lean hog futures all ended lower on Tuesday, with a rally in the cattle markets.
Corn Falls on Bearish Quarterly Stocks
Corn was down $.06 on the close as USDA’s Quarterly Stocks Report showed stocks in all positions at 1.532 billion bu.
Dan Basse, president of Ag Resource Company says that was 195 million bu. above trade guesses and up 207 million from USDA’s projected ending stocks.
“Cash markets were telling us we wouldn’t have any shortages mind you, but I didn’t think that we find this much supply. This is the third largest miss on a stocks report on a bear side that we can find in history,” he explains.
Where Did the Extra Corn Come From?
However, going into the report the market saw spreads weaken and corn basis widened which would have indicated the extra bushels.
Basse says, “We all, in the industry, argued that the January report last year was incorrect as farmers didn’t correct seed moisture levels to what USDA or NASS would traditionally use, 15.5%. So maybe we’ll have the same problem this year. But as we think about it, we thought that the crop was probably understated. And I think that’s what came forward.”
However, there is also speculation about the feed and residual category.
He says, “Feed residual fell to, you know, 5.45 billion bushels. That’s down sharply. The big question now is USDA probably needs to lower their feed residual estimate currently at 6.1 billion total for not only old crop but new crop,” he says.
How Low Does Corn Yield Need to Fall to Get Below 2 Billion Now?
Basse says on the surface it looks like yields would need to drop to 181 bu. per acre nationally.
However, as USDA lowers yield they will also lower demand.
“If you look back at the August, September and now this report the USDA, whether through extra acres at 3.5 million
that we found combined in both August and September along with the 200 million bu. we found in stocks. I need nearly 10 bushel an acre cut off yield nationally if I’m going to get that corn ending stocks to even be remotely under two billion bushels and get this market going,” he explains.
Is $4 Corn in the Cards?
So does that suggest corn prices are too high and need to fall back below $4 on the futures?
Basse says unfortunately, the job of the market is to go low enough to stimulate additional demand.
“It is not inconceivable with the additional and sorghum and potentially wheat that the corn market has not scored its season lows yet. That may happen as we head into storage problems during the month of November and go into first notice day,” he says.
Soybeans Make Fresh Lows
Quarterly stocks for soybeans were slightly friendly at 317 million bu. which was down nearly 14 million bu. from USDA’s estimated ending stocks.
However, Basse says soybeans made new lows for the move as the market has realized it doesn’t matter because demand projections are too high if the U.S. does not get China back in the export market.
“We found our stocks down about 13 or 14 million bu. relative to what the USDA indicated back in September. It’s a nice modest amount but China as we get into the month of October seasonally was importing somewhere between let’s talk about 40 to 70 million bu. of U.S. soybeans per week and so we are not going to have China this year during October, maybe not November and so that demand is being lost so the soybean market fell even though the stocks data on face value looked a little supportive.”
China Has Enough Argentina Soybeans to Get Through November?
After China’s buying spree last week they may have bought enough soybeans to get through November, according to Basse, and won’t need the U.S.
“We count somewhere in a vicinity of 44 to 46 cargoes of soybeans sold to China. That’d be about 2 .7 or 2 .8 million metric tons. We think there may be a few days left in November and then they’re working on December, both out of Brazil and Argentina,”
He says the Brazilian new crop supply gets harvested in late in late December, early January and so that leaves a 30 to 40 day window for the U.S. to work out a deal with China to get any soybeans sold in 2025.
Can China Go Without U.S. Soybeans?
Basse says between Brazil, Argentina and their reserves, China could conceivably get by without U.S. beans for this crop year.
“The New York Times reported their reserves are over 40 million metric tons. My private sources put it between 34 and 38 million tons. Either way, the Chinese have enough reserve stocks to probably negotiate through the South American harvest,” he adds.
Soybeans Also See Harvest Pressure
Soybeans also fell under the weight of hedge and harvest pressure as warm, dry weather is pushing the combines along.
November beans are holding $10, but just barely, and Basse thinks that support area is vulnerable.
“My thought process have to drop down to $9.80 or $9.60 before we see the seasonal lows,” he says.
Wheat Hit By Double Whammy
Wheat futures saw new contract lows, at least in the Soft red winter wheat class, as USDA raised production by 58 million bu. in the Small Grains Summary to 2.12 billion bu.
Stocks in all positions were also increased more than expected to 2.054 billion bu. which is 128 million bu. from last year.
Basse says that was negative for the wheat market which is already pushing to prices low enough to work its way into the feed ration.
“In Western Kansas wheat is already being fed,” he states.
Government Shutdown Looms
Also overhanging the market is a possible government shutdown at midnight.
Basse says this would be negative for the grain market as there would be a void of news, especially on the export front.
If it lasts for any length of time it could also delay the October WASDE.
Cattle Futures See Short Covering
Cattle futures saw a technical bounce with feeders taking the lead.
However Basse thinks it was just end of month and end of quarter position squaring or profit taking.
Cash cattle trade was lower last week and Choice beef has fallen nearly $50 from it’s highs and so he thinks the move was purely technical.
